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Agricultural woes, inflation & more...

Poor agricultural productivity
India's agricultural productivity leaves a lot to be desired. This is despite the fact that the country's supply of arable land is second only to the US. While the Green Revolution was a big success in making India self sufficient in food, there have not been any significant improvements since then. Infact, India has resorted to importing some staples from the international markets. The International Herald Tribune states that while the production of cereals more than doubled in India between 1968 and 1998, since the 1980s, the government has not expanded irrigation and access to loans for farmers or to advance agricultural research.

Indian agriculture is beset by a myriad of problems. While dependence on monsoons is one of them, an increasing number of small land holdings (36% of all cultivated land is small and marginal that is less than one hectare) is the other major concern. And most of these farmers are indebted - 61% of all farmers having land holding below one hectare are indebted in contrast to 6.4% of those whose land holding size is above 4 hectares. As indebtedness is generally a function of poor incomes, this throws light on the unviability of small land holdings as a source of livelihood. While rising number of suicides among farmers prompted the government to waive off farm loans to the tune of Rs 700 bn, this is only likely to send out wrong signals rather than significantly improve the situation.

Saudis and oil
While the escalating crude prices are giving the Middle Eastern countries something to cheer about, Saudi Arabia seems to have reacted in a manner, which is in contrast to that of its peers. Readers would do well to note that Saudi Arabia has announced that it would increase the production of oil by 500,000 barrels per day. The Saudis are worried that increasing oil prices would lead to a slowdown in demand, which in turn could impact their revenues and profits akin to the oil price shock in the 1970s. The fact that nations are on the lookout for alternative sources of energy (biofuels in particular) could also have alarmed Saudi Arabia, which heavily depends on oil revenues to fuel its economy.

That said, this view is not necessarily shared by its Gulf counterparts, who seem to be content with the state of things as they are now. Given the geopolitical tensions in the Middle East and insatiable demand for oil in the emerging economies, oil prices are likely to stay firm. However, if such high prices continue to persist, at some point, if not already, demand across the world would definitely reduce and in turn could cool off prices. When this scenario is likely to emerge is anybody's guess.

Inflation, inflation everywhere!
India's inflation soaring to 11% has created a panic among consumers, economists, the central bank and the government; the latter's ability to hold on to its chair now in serious jeopardy. However, inflation is not just an India centric problem with rising food and oil prices having an adverse impact on countries around the world. The ill effects of the subprime crisis having dominated much of 2007, the focus this time has shifted to inflation. While effecting an interest rate hike seems like the obvious solution to counter inflation, it is not without its own share of problems. In the US for instance, rising oil prices, which have been the chief catalysts stoking inflation, could put the breaks on spending and hiring; a rise in interest rates will add fuel to the fire. The International Herald Tribune states "Because oil is priced in dollars, its price rises when the dollar slips. That raises fuel costs for Americans and stunts growth in the world's largest economy. But for non-US consumers, it makes oil cheaper, bolstering demand".

Inflation fears have gripped China and Europe as well. While China has responded by raising oil prices in the country and cutting back on fuel subsidies, the European Central Bank has given signals of raising interest rates in early July.

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